Investing
Understanding the Difference Between Will vs. Living Trust
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You have worked hard for your money all your life and have substantially saved up along the way. It is only natural that you want some control over what happens to your assets and saving after you depart from this life. You choose the right strategy for distributing your assets based on your circums...
You have worked hard for your money all your life and have substantially saved up along the way. It is only natural that you want some control over what happens to your assets and saving after you depart from this life. You choose the right strategy for distributing your assets based on your circumstances. Some people might prefer writing a will, while others might prefer investing in a living trust.
The key differences that will help you decide between writing a will or planning a living trust are highlighted below.
Will is a document that contains instructions regarding the distribution of your assets after your passing. Your will may even include the instructions for your funeral arrangements, the custody of your minor children (if any), and even specific instructions for the executor of the will. For example, if you have minor children, the assets you have designated to them may be held off in safe custody of the executor or the appointed guardian till the children turn of age.
A will requires to be signed and witnessed according to state law. It must be signed by the designated probate court of your authority and carried out by an executor. The document will be a matter of public records and the court will have authority over any conflicts that might arise.
On the other hand, a living trust is a legal arrangement that directs the transfer of a person’s assets from the trustor to the trustee. The trustee ensures that the terms of the agreement regarding the distribution of assets to one or more designated recipients are met within the interests of the beneficiaries. Consult a lawyer on how to create a living trust to get more information and specifics.
Unlike wills which are only put into effect when the person dies, a living trust can be put into effect during the person’s lifetime as well if they wish so. Usually, people invest in trusts when they must distribute their estates to their designated heirs.
There are several kinds of trusts; recoverable trust; irrecoverable trust, charitable trust, and special purpose trust.
Avoid Probate
Assets inherited through a will are passed through probate court, whereas the assets acquired through living trusts do not have the same requirement. Probate court is a system designed to wrap up a person’s personal affairs and set any debts in order after their death. The court probate processing takes a lot of time, can be very expensive, and is often just an unnecessary step.
People tend to choose living trusts to distribute their assets to beneficiaries without any further fees or interference. However, if you do not have that many assets or are in a lot of debt, creating a trust is unnecessary.
Property Transfer
In order to leave your property (to your designated recipients) through a living trust, you are required to first transfer your property into the trust. For many people, the process of transferring their property is as easy as listing down their properties on paper and attaching them with the trust document, but in cases where the property is titled under real estate, it will have to be renamed and then listed so that the trustor’s name is on the document.
The whole transfer of property process is not required when naming your inheritance through a will.
Avoiding Conservatorship
A living trust allows you to name your child, friend, spouse, or any other trusted person as trustee of your property and other assets if you become incapacitated and cannot manage your affairs.
Whereas a will does not allow you to appoint anyone as a trustee if you are indisposed, it allows you to appoint a power of attorney to manage your affairs.
Child Custody and Property Management
Creating a will allows you to grant custody of your minor children to trusted guardians in case of an incident, however, a living trust does not allow any transfer of custody upon death. Moreover, in a will, you can also name someone you trust to manage your children’s inheritance until they come of age; a living trust does not allow that.
Debt and Tax Payment
Writing a will allows you to give instructions regarding how you want your existing debts after you pass away to be paid. For instance, you can write in our will that you want a certain property of yours to be sold to make debt payments. You can even leave instructions on how you want your taxes to be paid. Plus, you can even forgive some debts owed to you in your will.
A living trust cannot do any of these things.
Protection From Lawsuit
Although any court challenges regarding wills and living trusts are rare, living trusts are considered more foolproof than wills if someone files a lawsuit.
Privacy After Death
Wills are made a matter of public records, accessible to anyone after a person’s death, which leaves no room for privacy regarding the distribution of your assets. In comparison, a living trust allows you to keep your asset distribution affairs private.
Ease of Creation and Execution
When writing a will, it is not necessary or required by the law that it be in a complex and nuanced term. Many states accept a handwritten will without any complicated clauses. To execute your will, you are required to sign it and get it signed by two witnesses who are receiving no part of your inheritance.
On the other hand, you must cover all the instructions regarding the trustee’s duties for a living trust, so it has to be written in complex terms, preferably by a lawyer (meaning it is more expensive). Then you must sign it in front of a notary public and take the steps of transferring your property.
To Conclude
For those who have substantial property and other assets to leave for their beneficiaries, a living trust is the way to go since it is foolproof, no additional fee is required later, and probate court can be avoided.
While those who have a considerable amount of debt and not that many assets can leave their property to their inheritors through a will.
It all depends on what suits your personal situation the best.
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A will is a legal document that outlines how a person's assets and affairs should be handled after their death, including the distribution of property and guardianship of minor children.
A living trust is a legal arrangement that allows a person to transfer their assets into a trust during their lifetime, which can then be managed by a trustee for the benefit of designated beneficiaries.
Probate is the legal process through which a deceased person's will is validated, and their assets are distributed according to the will, often involving court supervision.
Asset distribution refers to the process of dividing a deceased person's assets among their beneficiaries as specified in their will or trust.
Estate planning is the process of arranging for the management and disposal of a person's estate during their life and after death, often involving wills and trusts.
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